11.10.13

An interesting debate has ensued about whether the cost of inflight connectivity services will increase if airlines can provide service from gate to gate rather than being restricted to operating above 10,000ft. Obviously on a short flight the extra time might be quite substantial as a proportion of the total flight length, although even if the increased availability is as much as 30%-75% more time (which I think is a little on the high side), the increase in data consumption per user will be far lower, because:

b) laptops consume a lot more data than tablets and phones, and laptops will not be able to be used during take off and landing (because they are too heavy to be safe in the event of an incident).

As a ballpark number, I’d suggest the actual increase in bandwidth consumption per paying passenger might be at most 10%-15% for Row44, given its exposure to Southwest, and much less for Panasonic and Gogo’s Ku-band service, given their different mix of customers. Note that total bandwidth consumption might increase more, because increased availability will stimulate higher take-up, but that’s a good problem to have, because more customers means more revenues as well.

I was quoted in the article offering a cost estimate of “10-20 cents per Mbyte” for traditional Ku-band services (while LiveTV’s Ka-band service will be “single digit cents” – that statement was not referring to GX). I’ve received considerable pushback from one Ku provider that my cost estimate for Ku is far too high and that the number for LiveTV/ViaSat’s Ka-band service is far too low.

I’d note that the retail rate for ViaSat’s consumer broadband service is $5-$7 per Gbyte (i.e. 0.5 to 0.7 cents per Mbyte), so it hardly seems implausible that the number for mobility services (which have a less efficient antenna and bandwidth utilization) would be a few cents. Last time I saw it, LiveTV’s customer pitch said 3 cents.

In terms of Ku-band, I derived my estimate from the cost of Ku-band transponders and the average likely utilization. Row44′s average cost of buying capacity from Hughes is about $2M p.a. for a 36MHz transponder, although that figure might be a bit lower for Panasonic and Gogo when they buy direct from a satellite operator (though there are teleport and backhaul costs to add onto raw transponder lease costs). Then you need to consider the number of bits you get from each Hz of satellite capacity. I assumed around 0.75 bits/Hz for a relatively small aero antenna, though that could go up if you have a very asymmetric usage profile (the aero antenna is far less efficient on the uplink than the downlink) and will certainly improve for High Throughput Satellites which offer a more powerful signal in their small spot beams. Then you look at the peak to average ratio – i.e. how much capacity you need for peak traffic. I assumed usage for around 10 hours per day and 5 days a week, due to the concentration of flights at peak times, the focus on business travelers and the lack of usage on overnight flights, giving a peak to average ratio of 3.36:1 (24/10*7/5). Providers might squash that peak a bit, but only at the cost of increased customer dissatisfaction when their service slows to a crawl (not an infrequent occurrence, implying providers probably do that at the moment).

That means that the underlying cost of capacity, if you had perfectly efficient capacity purchases, is around 6.3 cents. However, to provide global coverage, you need to lease a lot of transponders you don’t use very efficiently, especially at the moment when there are only a few aircraft flying on numerous different long haul routes. At best the efficiency (i.e. usage of purchased capacity) is likely to be no more than 50% today, though perhaps that will get a bit better in the future. So if you’re a provider, you could offer a reasonable service at cost to an airline at around 12.6 cents a Mbyte. And if you actually want to make a profit, then you ought to charge something closer to 20 cents per Mbyte.

Of course that’s not what providers do charge right now: Row44′s service revenues are only about half what it pays for capacity, and I doubt Panasonic’s revenue to capacity cost ratio is much better. So put another way, Row44 is probably getting paid about half of its per Mbyte cost (estimated as 12.6 cents per Mbyte above) or 6 cents per Mbyte, rather than the 20 cents it needs to have a decent business. Does that mean my 10-20 cent estimate is wrong? I think it really means that the current business plan is unsustainable.

11.06.13

In my view the announcement of a partnership between Orbcomm and Inmarsat on Monday evening may represent a sea change for the MSS industry, as Orbcomm showed how its planned “multi-network operator strategy” could eventually lead to it getting out of the business of operating its own satellite fleet, allowing Orbcomm to be what it wants to be: a solutions provider rather than a satellite operator.

In the short term the deal means that Orbcomm will invest in developing a new low cost Inmarsat ISatDataPro (IDP) module, costing around $100 (i.e. aiming to be less expensive than Iridium’s SBD module) which OEMs and VARs can choose to drop into their terminals as a direct alternative to Orbcomm’s own OG2 module, using a common management interface provisioned by Orbcomm.

The choice of module will be up to the OEM, and will depend on their data needs (IDP has higher capacity and less latency, because there will sometimes be several minute gaps in coverage between the 17 OG2 satellites), the geographies they will serve (Inmarsat will provide access to Russia and China) and the price they are willing to pay (IDP service will be more expensive than the current Orbcomm $5-$6 OEM ARPUs). Note that this is somewhat different than Orbcomm’s arrangement with Globalstar, under which Orbcomm’s Solutions business offers a Globalstar tag to retail customers (and existing Comtech VARs), but Globalstar will not be a direct alternative for Orbcomm’s OEM customers (who buy from Orbcomm’s Devices and Products business).

In the longer term it seems to me that (although this is not part of the current agreement with Inmarsat) Orbcomm will very likely not build a third generation of LEO VHF satellites, as the nature of their network (where the LEO satellites search actively for channels that are free of interference as they orbit the Earth) would be very difficult to consolidate onto an Inmarsat GEO platform. Because Orbcomm will have access to Inmarsat capacity on an I6 constellation which will last into the 2030s, eventually (in a decade or more) Orbcomm could instead migrate its customer base onto Inmarsat’s L-band services, so that it will not have to spend hundreds of millions of dollars on another round of fleet replenishment. In fact, if Orbcomm has any substantial launch problems with OG2 (remember that the satellites from its last two launches have been lost) it might not even make sense to reinvest the insurance proceeds in replacement satellites and conceivably such a migration could take place more quickly.

The significance of this announcement is that it appears to represent the first step towards a reduction in the amount of capex being invested in the rather slow growing MSS market. The next question will be whether, when Inmarsat orders its I6 L-band satellites (likely in late 2014 or early 2015), it opts for a copy (or even a simpler version) of the I4 constellation, and thus whether, as I suggested last year, we really have now reached the “end of history” in the MSS L-band industry. After all, with the sale of the Stratos energy business to RigNet (and a likely disposal of Segovia), Inmarsat is now backing away from its strategy of going direct, and is continuing to focus on maritime price rises to boost revenues, in accordance with the other part of my “end of history” thesis.

11.01.13

So, as many expected, Globalstar’s NPRM finally emerged from the FCC tonight, before the new Chairman, Tom Wheeler, is sworn in on Monday. It appears that Wheeler has had a strong influence on the rather subdued language in this NPRM, which takes a much more equivocal stance than similar NPRMs (and has even been toned down compared to previous drafts, or so I’m led to believe).

As the language perhaps reflects Wheeler’s more cautious stance compared to former Chairman Genachowski’s “full speed ahead” approach, it is hard to predict what this will mean for Globalstar’s potential approval process. However, it is clear that it will take some time, because the FCC is seeking detailed technical studies from commenting parties, and has set a relatively long comment deadline of 75 days after publication in the Federal Register (i.e. January or February 2014).

Nevertheless, it is instructive to compare the language to DISH’s AWS-4 NPRM in March 2012, especially as that is the model that Globalstar sought in its petition, which stated that “the Commission’s rulemaking proposal on terrestrial use of Big LEO spectrum should incorporate a number of the basic reforms proposed by the Commission in the 2 GHz NPRM”. As a starting point, the DISH NPRM set a comment period of 30 days after publication, but more notable is how definitive the DISH NPRM was about its intentions:

DISH: “In this Notice of Proposed Rulemaking, we propose to increase the Nation’s supply of spectrum for mobile broadband by removing unnecessary barriers to flexible use of spectrum currently assigned to the Mobile Satellite Service (MSS) in the 2 GHz band”Globalstar: “By this Notice of Proposed Rulemaking (Notice), the Commission proposes modified rules for the operation of the Ancillary Terrestrial Component (ATC) of the single Mobile-Satellite Service (MSS) system operating in the Big LEO S band”

DISH: “With this proceeding we intend to fulfill the Commission’s previously stated plan to create a solid and lasting foundation for the provision of terrestrial services in 40 megahertz of spectrum in the 2 GHz band”Globalstar: “For all the reasons stated herein, we believe that Globalstar’s proposal to deploy broadband access equipment should be further examined and a record developed to determine whether this proposal has the potential to enable more efficient use of Globalstar’s S-band spectrum and spectrum in the adjacent band. This action could potentially increase the amount of spectrum available for broadband access in the United States”

DISH: “According to Cisco Systems, North American mobile Internet traffic more than doubled in 2011 and is expected to grow over 15-fold in the next five years. This explosive growth is creating an urgent need for more network capacity and, in turn, for suitable spectrum”Globalstar: “The rapid adoption of smartphones and tablet computers, combined with deployment of high-speed 3G and 4G technologies, is driving more intensive use of mobile networks. According to Cisco Systems, global mobile Internet traffic is expected to grow over 13-fold from 2012 to 2017″

DISH: “In this Notice of Proposed Rulemaking (AWS-4 Notice), we build on the Commission’s recent actions to enable the provision of terrestrial mobile broadband service in up to 40 megahertz of spectrum in the 2000-2020 MHz and 2180-2200 MHz spectrum bands. We propose terrestrial service rules for these spectrum bands that would generally follow the Commission’s Part 27 rules, modified as necessary to account for issues unique to the 2000-2020 MHz and 2180-2200 MHz spectrum bands. Given the proximity of these spectrum bands to spectrum bands previously identified as AWS, in our proposal we refer to these spectrum bands as “AWS-4″ or “AWS-4 spectrum”Globalstar: “We believe that Globalstar’s proposal to deploy a low-power terrestrial system in the 2473-2495 MHz band should be examined to determine whether it is possible to increase the use of this spectrum terrestrially in the near term, without causing harmful interference to users of this band and adjacent bands, and without compromising Globalstar’s ability to provide substantial service to the public under its existing MSS authorization. If supported by the record, this action could potentially increase the usefulness for terrestrial mobile broadband purposes of 11.5 megahertz of licensed spectrum. As a result, these changes may induce increased investment and innovation throughout the industry and ultimately improve competition and consumer choice. Therefore, we propose to make the changes to Part 25 of the rules necessary to provide for the operation of low-power ATC in the licensed MSS spectrum in the 2483.5-2495 MHz band”

(note that Globalstar also sought to operate under Part 27, which the Commission rejected, and I’m told that an earlier draft of the NPRM also contained a proposed new name for this band, although not the “AWS-5″ designation that Globalstar had sought)

As far as the specifics of the NPRM proposal goes, it appears that the FCC has gone along with Globalstar’s requested TLPS power and OOBE levels, while highlighting that “significant concerns have been raised about potential detrimental impact on unlicensed devices, such as Bluetooth, that are currently used extensively for various wireless broadband services and applications”. However, there are a number of lurking issues, such as the process to be used for approving any changes to devices to use the new service (which will fall under Part 25 so would normally require a new FCC ID to be granted for an existing Part 15 device operating in the WiFi band).

In addition, proposed use of Part 25 along with a simple modification to the existing ATC rules to require TLPS to be permitted (so long as Globalstar can “demonstrate the commercial availability of MSS, without regard to coverage requirements”), could make it harder to get LTE approval in the future, especially in the L-band, where the FCC warned Globalstar that “Should we find it to be appropriate, the Commission reserves the right to consolidate this proceeding with any proceeding addressing Globalstar’s L-band proposal and Iridium’s petition for rulemaking” (creating a risk that some L-band spectrum could be reallocated to Iridium if Globalstar pushes for LTE authorization: the FCC quietly issued a public notice seeking comment on Iridium’s petition for reallocation of L-band spectrum on Friday as well).

So now the question is whether Wheeler will be prepared to work through these issues, face down the interference concerns and push through a final order approving TLPS, or if he will instead prioritize the 3.5GHz band, where a public notice was also issued today (with a much shorter comment cycle), seeking further comment on how “Priority Access” licenses (which as I’ve remarked before could be somewhat similar to TLPS) might be allocated for exclusive use.

UPDATE (11/3): Globalstar’s press release noted that the release of the NPRM “represents a seminal development and yet another step forward in Globalstar’s renaissance”. However, unlike in September, when the NPRM was circulated, its notable that the company didn’t say that it was “very pleased” with the FCC’s action. Globalstar’s comment that “We look forward to receiving the public’s comments and working towards a final order over the next several months” is also a curious description of a process where reply comments won’t even be received for 3.5 months after publication of the NPRM in the Federal Register.